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News Link • Obama Administration

Is a Large Bank Going Down?

• EconomicPolicyJournal.com
 
The unlimited coverage is separate from, and in addition to, the insurance coverage provided for a depositor’s other accounts held at an FDIC-insured bank. A noninterest-bearing transaction account is a deposit account where: •interest is neither accrued nor paid; •depositors are permitted to make an unlimited number of transfers and withdrawals; and •the bank does not reserve the right to require advance notice of an intended withdrawal. Note: Money Market Deposit Accounts (MMDAs) and Negotiable Order of Withdrawal (NOW) accounts are not eligible for this temporary unlimited insurance coverage, regardless of the interest rate, even if no interest is paid. Yup, the FDIC has suddenly, seemingly out of the blue, decided to insure ALL non-interest bearing accounts regardless of the size of the balance. One respondent to the email, replied: I talked to a former FDIC official (she has a Ph.D. in finance) who interviewed for a position on our faculty a few months ago. I told her that I thought the Fed should not have bailed out banks and should have let various banks fail in 2008. She said that the problem is that the FDIC is not organized enough to take over a bank with more than about $10 billion in deposits because they have to do it over a weekend and they can't do enough due diligence with a bank larger than that to figure out who gets 100 cents on the dollar and who doesn't. So it might be that the FDIC thinks it will need to take over larger banks and this is the first step. The respondent added that this comment was made just thinking the possibility out quickly, but it does make sense. If the FDIC doesn't have the capacity to determine who should be paid, and who shouldn't, well then, pay them all. Sounds like FDIC logic to me. This would make even more sense if any such big bank that were to go down had sizable deposits from the power elite.

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